S. 269SS: Cash Transactions with Sister-in-Law & Nephew not amounts to Loan

Sri Jagmohan Sharma Vs. JCIT (ITAT Kolkata)

The transactions between these family members are neither loans nor deposit and purely a family system and purely a family requirement to help each other in the needy hours, for example medical help, education help and expenses to run the family. That is, one member of the family helps to other member in the needy hours, such as during medical treatment, education, marriage or some other family needs. Therefore, respectfully following the judgment of the Coordinate Bench, we are of the view that transaction between Sister-in-law and Nephew (family members) did not fall in the definition of loan. Therefore, penalty for accepting loan and repaying loan u/s 271D and 271E should not be levied. Therefore, we quash the penalty u/s 271D and 271E for the A.Y 2005-06 in ITA No. 552/Kol/2015 and in ITA No.553/Kol/2015.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

The captioned two appeals filed by the assessee, pertaining to Assessment Year 2005-06, are directed against the orders passed by the CIT(A) in Appeal Nos. 81 & 82/CIT(A)/Asl/R-3/Asl/12-13, both dated 20.03.2015, which in turn arise out of penalty orders passed by the Assessing Officer under sections 271D and 271E of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’), both dated 28.06.2012.

2. Since, these two appeals relate to the same assessee, same Assessment Year and identical issues are involved, therefore, these have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. The assessee’s appeal in ITA No. 552/Kol.2015, for A.Y. 2005-06, is taken as the lead case.

3. The grounds of appeal raised by the assessee( in lead case in ITA No. 552/Kol/2015) are as follows:

“1. For that the order of ld. CIT(A), Asansol is bad in law as well as in facts and therefore needs to be modified.

2. For that the Ld. CIT(A) erred in law as well as in facts in sustaining the Penalty of Rs. 4,50,000/- in complete disregard to the ratio laid down in binding judgment of the jurisdictional Honorable Calcutta High Court as well as Honorable ITAT, Kolkata; the penalty so sustained needs to be deleted in full.

3. For that the assessee craves leave to add, to modify or withdraw any ground/s of appeal either before or at the time of hearing”.

4. The facts apropos the ground are that the return of income for the A.Y. 2005-06 was filed by the assessee on 27.10.2005 declaring total income of Rs. 1,25,660/-. During the assessment year under consideration, the assessee was engaged in the business of repairing and plying of trucks. The case was assessed u/s 143(3) on 26.11.2007 determining assessed income at Rs. 13,04,090/-. During the course of assessment it was found that the assessee has made cash deposit of Rs. 11.00 lacs in the Raniganj Co-operative Bank and the source of such deposit was remained unexplained. Thus, the said cash deposit in bank was treated as unexplained money of the assessee and added back in the assessment U/s 69A of the I.T. Act along with other addition. Subsequently, the Honorable ITAT, Kolkata, vide its order No. ITA No. 832/Kol/2009, for A.Y. 2005-06 set aside the above issue, on account of addition U/s 69A of the Act and directed the Assessing Officer to re-decide the addition on account of unexplained money of Rs. 11,00,000/-. Then after, the assessing officer made the assessment under section 143(3)/254 of the Act, as per the direction given by the Honorable ITAT and while making the assessment, the Assessing Officer noticed that loan confirmation of the parties from whom short term loan was taken by the assessee for repayment of loan of Rs. 11,00,000/- lacs to the Raniganj Co-operative Bank. Ongoing through the loan confirmations filed by the assessee, it was found that the assessee has repaid the loans totaling to Rs. 5.00 lacs (being Rs. 4,00,000/- + Rs. 45,000/- + Rs. 55,000/-) in cash to the loan parties during the financial year under consideration and it was evident that the amount of such loan repaid was more than Rs. 20,000/-. On going through the loan confirmations filed by the assessee, it was also found that the assessee has accepted the loans totaling to Rs. 5.00 lacs (being Rs. 4,00,000/- + Rs. 45,000/- + Rs. 55,000/-) in cash from the loan parties during the financial year under consideration and it was evident that the amount of such loan acceptance was more than Rs. 20,000/-. Moreover, the fact of the acceptance and repayment of such loans was never brought to notice of the Department in any earlier stage of assessment. Thus, in the case of the assessee there was a violation of both the sections, that is, section 269SS and Section 269T of the I.T. Act. Therefore, the assessing officer imposed Penalty u/s 271D at Rs. 5,00,000/- and u/s 271E at Rs. 5,00,000/-.

5. Aggrieved by the penalty orders of the Assessing Officer, the assessee filed an appeal before the ld. CIT(A) who has partly allowed the appeal of the assessee. The ld. CIT(A) observed that against the penalty under section 271D imposed by JCIT on account of taking loans contravening provisions of section 269SS,the details of loans recorded in books of accounts on 29.06.2004 of assessee and considered by JCIT for imposition of penalty were as under:

During the appellate proceedings, the Ld. CIT(A) noted that the lenders were, elder brother (Rs. 50,000), nephew (Rs. 50,000) and sister-in-law (Rs. 4,00,000/-) as compared to the amount noted by the Ld JCIT, as noted in table above. During the appellate proceedings, the assessee stated before the CIT(A) that his case was covered by decision of Honorable High Court of Kolkata inthe case of Mansur Ali Khan (ITAT No. 111 of 2012 GA No. 1498 of 2012) wherein it was held that transactions between family relatives are not covered by the provisions of section 269SS and 269T of the Act.

The CIT(A) noted that judgments relied by the assessee relate to a transaction between siblings in an explicit manner. It cannot be stretched and cannot become one free of any boundary so as to encompass every relatives like sister-in-law and nephew who are actually members of different family units or even distant relations. Other than very close relatives like parents, siblings or spouse, it cannot be expected in any situation to deposit cash with a person technically not part of ‘family’. As ‘family members’ are not defined anywhere, somewhere there has to be a boundary in deciding who a family member is. The CIT(A) observed that it was for assessee to establish reasonable cause with documentary evidence or with some acceptable evidence. However, the CIT(A) has considered the “elder brother” as part of family and deleted the penalty up to Rs. 50,000/-.The CIT(A) noted that assessee had failed to explain the reasonable cause within meaning of section 273B of the Act, therefore, he upheld the imposition of penalty on the remaining sum of Rs. 4,50,000/- (Rs. 5,00,000– Rs. 50,000/-).

6. Not being satisfied with the order of the CIT(A), the assessee is in appeal before us. At the outset, the ld. Counsel for the assessee has submitted before us that Honorable ITAT Kolkata Bench, Kolkata has decided the issue on the identical facts in the case of Sri Mansur Ali Laskar in ITA No. 1094/Kol/2011 for A.Y 2007-08 dated 30.12.2011 wherein the Honorable Tribunal has considered, Niece, Uncle, Aunty, Wife of brother, Wife`s Sister and Cousin sister as a family members. As per the said judgment, the list of the family members are given below:

Therefore, Counsel for the assessee has stated that if Niece, Uncle, Aunty, Wife of brother, Wife`s Sister and Cousin sister are considered as family members then why not sister -in- law and Nephew. That is, as per the Chart given above, sister -in- law and Nephew should also be part of family members, and penalty under section 271D and 271E should not be levied. The ld Counsel also submitted before the Bench that against said judgment of the Kolkata ITAT in the case Mansur Ali Laskar( supra), the Revenue had filed an appeal before the Honorable Kolkata High Court, vide ITAT No. 111/2012 GA No. 1498/2012, and the Honorable Court had dismissed the appeal of the Revenue and affirmed the judgment of Honorable ITAT Kolkata.

7. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.

8. We have given a careful consideration to the rival submissions and perused the material available on record, we note that Coordinate Bench of the Kolkata Tribunal in the case of Sri Mansur Ali Laskar in ITA No. 1094/Kol/2011 for A.Y 2007-08 dated 30.12.2011 (supra) wherein the Bench has considered, Niece, Uncle, Aunty, Wife of brother, Wife`s Sister and Counsin sister as a part of family members. In the assessee`s case under consideration the transaction with sister-in- law and Nephew should also be considered as a part of family members. There is no difference between Wife`s sister and Sister-in law and if Niece is part of family member then Nephew should also be part of family member.

We note that Judgment of the Coordinate Bench in the case of Sri Mansur Ali Laskarhas been duly approved by the Honorable Kolkata High court in ITAT No. 111 of 2012 GA No. 1498 of 2012. Therefore, the definition of relatives include husband, wife, brother, sister, sister-in law, Niece and Nephew etc. as per the list given in para 6 of this judgment. The transactions between these family members are neither loans nor deposit and purely a family system and purely a family requirement to help each other in the needy hours, for example medical help, education help and expenses to run the family. That is, one member of the family helps to other member in the needy hours, such as during medical treatment, education, marriage or some other family needs. Therefore, respectfully following the judgment of the Coordinate Bench, we are of the view that transaction between Sister-in-law and Nephew(family members) did not fall in the definition of loan. Therefore, penalty for accepting loan and repaying loan u/s 271D and 271E should not be levied. Therefore, we quash the penalty u/s 271D and 271E for the A.Y 2005-06 in ITA No. 552/Kol/2015 and in ITA No.553/Kol/2015.

9. In the result, the appeals filed by the assessee (in ITA No. 552/Kol/2015 & ITA No. 553/Kol/2015) are allowed.

Order is pronounced in the open court on 10.01.2018.